The economic picture for private colleges and universities in the 2002-3 fiscal year looks less promising than it did six months ago, according to a new report from Moody’s Investors Service. Private institutions will probably see the value of their investments decline and face new challenges in fund raising and generating revenue from tuition.
The outlook appears to be more favorable for public universities, but declining state appropriations and rising tuitions should pose problems for them in the year ahead, Moody’s said in a separate report. Both reports were released last week.
Moody’s revised its outlook for private colleges in the forthcoming fiscal year to “cautiously stable”; in January, it had declared the outlook for the year to be “positive.” But the sluggish economy and poor performance of financial markets figure to pose problems for private institutions, the bond-rating agency said last week.
Private colleges with modest endowments, particularly in rural areas, may face problems, Moody’s said in the report. Universities that are dependent on tuition for income may suffer as well, primarily in regions where more affordable public institutions dominate the market.
Perhaps the most telling indicator is this: Moody’s predicts that the number of institutions whose bond rating will be downgraded could match the number of colleges getting a higher rating. Such a development would be a sharp contrast from 1998 to 2001, when upgrades exceeded downgrades by a ratio of 3 to 1.
Moody’s noted that most private institutions had not fared well with their investments in the 2001 fiscal year. Only 36 percent of the 255 institutions rated by Moody’s posted positive returns. With the sluggish stock market still a concern to potential donors, many institutions will probably continue to have trouble attracting private gifts. Private donations to Moody’s-rated colleges and universities fell to $8.3-billion in 2001, down from $8.9-billion the previous year. Giving in the coming year is expected to be flat, the bond-rating agency said.
On the positive side, steady enrollments will probably help colleges keep a stable footing, and the prospect of a “baby boomlet” offers some optimism for the future, Moody’s said. Over the next 10 years, the number of high-school graduates nationally is expected to rise by 5.9 percent.
Nonetheless, private and public colleges with modest finances face some tough choices. Some residential colleges will be pressed to spend funds to build or refurbish dormitories, laboratories, and student centers to deal with an influx of new students and compete with affluent research institutions. However, if the weak economy continues, those colleges may strain under the added debt, Moody’s noted.
With state appropriations lower than in previous years, public institutions face the dilemma of managing finances while maintaining affordability, the agency said. However, student demand for public colleges is expected to remain high, Moody’s noted. And because of modest operating costs and greater success in fund raising in past years, public institutions should maintain healthy credit ratings in the year ahead, the agency concluded.
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